This article first appeared in my weekly column with the Business Daily on November 22, 2015
It is widely known that China has been making significant inroads into Africa over the past two decades and a great deal of energy has gone into analyzing Sino-African economic interaction. However, another country has been making big moves yet barely any attention has gone into analyzing India’s growing footprint on the continent. Last month the Third India Africa Summit took place in New Delhi, clearly signaling India’s interest in the region.
Carlo Lopes of the UNECA makes an important point when he recently stated that Chinese foreign direct investment (FDI) stock is less than 1% of the country’s total global investment yet India invested as much as 16% of its outward FDI, valued at $70 billion, in Africa in 2013. Further, Africa is responsible for 26% of India’s total inward FDI stocks at $65 billion, more than Brazil, China, the Russian Federation and the USA. Analysts make the point that Indian FDI to Africa is concentrated in oil, gas and mining, and investment in the manufacturing sector is focussed on automobile and pharmaceutical firms. Most of the Indian FDI in African countries is through Greenfield investments and joint ventures. India’s growing investment in the region is seen to be motivated by a blend of factors such as socio-cultural ties particularly due to a healthy Indian Diaspora on the continent estimated at over 2 million, host country policies, regional integration agreements, bilateral investment treaties as well as GDP growth in Africa. An interesting point to note however is that India’s FDI into the continent is focused on a limited number of countries; in 2012 95 percent of India’s total FDI stock went to Mauritius alone partly due to its favourable tax treaty with India.
In terms of trade, the IMF estimates that the value of India’s exports to Africa have increased by over 100 percent from 2008 to 2013, and the value of India’s imports from Africa also grew dramatically from 2008-2013 by over 80 percent. This year Indo-African trade it is expected to be about USD 70 billion. African exports to India have been growing annually at 32.2% while Indian exports to Africa grew annually at 23.6%. Sadly in terms of trade composition, a vast majority of exports from Africa to India are raw materials such as crude oil, gold, raw cotton, and precious stones. Indeed, while India’s merchandise imports from Africa totalled $447.5 billion in 2015, oil imports accounted for $116.4 billion and gold was $34.4 billion Exports from India to Africa mainly consist of high-end consumer goods such as automobiles, pharmaceuticals, and telecom equipment. Trade between Kenya and India stood at USD 4.23 bn in 2014 and the country has been jostling with China as Kenya’s top trade partner.
India is also becoming an important lender to the continent, USD 8bn was provided in Lines of Credit (LOCs) to Africa between 2008 and 2011 and Africa constitutes 53 percent of India’s operative LOCs. The LOCs finance a range of sectors ranging from agriculture, food processing, rural electrification, IT and infrastructure.
As the Brookings Institute states, although Indo-African economic relationship is burgeoning, there is clearly much more room for growth if the country wants to be as significant as China and the USA on the continent. Indeed as China reorients itself and undergoes some difficulty, India can become a very important partner for Africa. From an African perspective, African countries should focus on diversifying their exports to India, tapping into the technological expertise in India and leveraging that for African development and being more proactive in attracting FDI from India.
Anzetse Were is a development economist; email: firstname.lastname@example.org